To provide benefits consistent with the scope and location of the role.

Transcription

1 DIRECTORS REMUNERATION REPORT CONTINUED REMUNERATION POLICY Shareholders approval of the Remuneration Policy set out below, in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulations), will be sought at the 2014 AGM and, subject to approval, will become effective immediately. Policy table for executive Directors Fixed Pay Purpose and link to strategy Base salary Benefits in kind Pension To provide a market competitive salary to recruit and retain individuals with the necessary knowledge, skills and experience to deliver the Group s strategic objectives. To provide benefits consistent with the scope and location of the role. To provide appropriate retirement benefits and assist with recruitment and retention. Operation Normally reviewed annually (with any increase generally taking effect from 1 July) taking into account a number of factors including individual experience, scope of the role, responsibility and performance, Group profitability, prevailing market conditions and pay awards in the Group generally. Benefits are consistent with those provided to senior managers, and principally include car and fuel allowance, life assurance, disability and healthcare benefits. Other benefits may be provided at the discretion of the Committee based on individual circumstances and business requirements, such as appropriate relocation and expatriate allowances and support. Provided by means of an allowance delivered in cash and/or as payment to a pension plan. Where historical arrangements are in place, benefits are provided in part through membership of the GKN Group Pension Scheme potential value Salary increases will normally be in line with the average increase awarded to other employees in the Group. However, larger increases may be awarded in circumstances where it is considered appropriate by the Committee, such as: an increase in scope and responsibility; a new executive Director being moved to market positioning over time; and an existing executive Director falling below market positioning. To comply with the Regulations, the maximum potential value for existing Directors will be no more than the amount paid to the Chief Executive at any time plus 15%. Benefits are set at a level which the Committee considers appropriate and are kept under review. Car and fuel allowances will not increase by more than 15% in any one year. Some benefits (such as healthcare insurance) are provided through third parties and therefore the cost to the Company may vary from year to year. Relocation and expatriate allowances, where granted, are set at a level which the Committee considers appropriate based on market practice and individual circumstances. The maximum allowance for Directors appointed from 1 January 2013 onwards is 25% of base salary. Directors appointed before that date currently have legacy benefits under the GKN Group Pension Scheme 2012, a defined benefit scheme. The pension due under these arrangements is up to two-thirds of pensionable salary (calculated on a career average basis for service from 1 September 2007 onwards), with a maximum annual accrual rate of 1/30 th. The Committee has discretion to provide alternative arrangements on terms no more favourable if it considers it to be in the best interests of the Company. These Directors receive a supplementary cash allowance of up to 40% of the difference between their individual pensionable salary and base salary. Performance measures Not applicable. Not applicable. Not applicable. 80 GKN plc / Annual Report and Accounts 2013

2 Variable Pay Annual bonus plan (STVRS) Deferred Bonus Plan (DBP) Sustainable Earnings Plan (SEP) Purpose and link to strategy To drive and reward achievement of short term financial and strategic measures which support long term strategic objectives. Any STVRS payment above a percentage of salary (currently 65%) is deferred into shares to assist with retention of key executives and to align their interests with those of shareholders. To encourage and reward sustained earnings performance in line with the Group s growth strategy and its objective of creating long term shareholder value. To assist with retention of key executives. STRATEGIC REPORT Operation Award levels and performance measures (including the proportion relating to strategic measures and weightings) are reviewed annually to ensure alignment with the Group s financial and long term strategic objectives. Level of payment is determined by the Committee after the year end based on performance against targets. Payments up to a certain percentage of base salary (currently 65%) are normally made in cash and the balance is deferred into shares under the DBP. The Committee has discretion to make the payment wholly in cash in certain circumstances (for example to a departing Director). DBP awards are released at the end of a two year deferral period. Awards generally lapse in the event of resignation during the deferral period. On release, a cash amount is paid equivalent to the aggregate dividends per share paid during the deferral period. A malus provision exists to allow the Committee to adjust unvested DBP awards in the event of material misstatement, material failure of risk management or serious reputational damage. Awards comprise a Core Award and a Sustainability Award (equal to 20% of the shares in a Core Award) with vesting based on performance over an initial three year (core) period and subsequent two year (sustainability) period. Subject to performance, 50% of the Core Award is released after the end of year three; the balance of the Core Award and the Sustainability Award are released after the end of year five. On vesting, the value of dividends accrued on vested shares from date of grant to date of release is delivered in additional shares or cash at the discretion of the Committee. The Committee reviews the award levels annually and keeps performance targets under review to ensure continued alignment with strategy. GOVERNANCE FINANCIAL STATEMENTS potential value is 110% of base salary. No additional opportunity above the STVRS maximum. award level under the SEP rules is 200% of base salary (including both the Core and Sustainability Awards). Performance measures Targets are normally applied to a combination of Group, and where appropriate individual portfolio, financial and strategic measures. A significant proportion of the total award is based on financial measures. Performance is measured over a one year period. Payments range between 0 to 110% of base salary with 55% of base salary payable for achievement of on target performance. No additional performance measures (see STVRS) but release is subject to continued employment. Core Awards: Measured over the initial three year period based on a stretching EPS growth target. Vesting at threshold is 25% rising to a maximum of 100%. Sustainability Awards: If the highest level of EPS attained in any year of the core performance period is achieved or exceeded in both years four and five, the Sustainability Award will vest in full (subject to any reduction made in respect of the core target not being satisfied over the core performance period). The sustainability target will be assessed for year four and year five separately. Vesting at threshold is 50% rising to a maximum of 100%. Vesting of Core and Sustainability Awards is subject to an additional test based on the Committee s assessment of the quality of earnings (as described below). OTHER INFORMATION Performance measures STVRS: a combination of financial and strategic measures which support the delivery of the Group s long term strategic objectives. Appropriate targets are set each year which align with the specific business objectives for that year. The Committee has discretion to alter targets to reflect changed circumstances such as material changes in accounting standards or changes in the Group s structure. The Committee also has discretion to reduce payments based on its assessment of underlying performance of the Group, including health and safety performance. SEP: based on sustained EPS growth over the long term in line with GKN s stated growth strategy and objective of creating long term shareholder value. Before any vesting can occur, the Committee must be satisfied that this is justified by the quality of earnings. This will involve consideration of Group return on average invested capital (ROIC) against internal projections, shareholder expectations, new investment performance and cost of capital to ensure that the level of vesting appropriately reflects shareholder value creation. In accordance with the rules of the SEP, the Committee can adjust and/or set different performance measures and targets if events occur (such as a change in strategy, a material acquisition and/or divestment of a Group business or a change in prevailing market conditions) which cause the Committee to determine that the measures or targets are no longer appropriate and that amendment is required so that they achieve their original purpose. Whilst stretching, targets under the STVRS and SEP are designed to discourage inappropriate risk taking. 81

3 DIRECTORS REMUNERATION REPORT CONTINUED Legacy incentive plans (ESOS and LTIP) Operation Executive Share Option Scheme (ESOS) provided market value share options exercisable on third anniversary of date of grant subject to performance. Long Term Incentive Plan (LTIP) provided share awards capable of exercise or release on fourth anniversary of date of grant, subject to performance. On release, a cash amount is paid equivalent to the aggregate dividends per share paid from the start of the final year of the performance period to the fourth anniversary of the date of grant. No awards have been granted under either plan since 2011 and no further grants will be made. potential value Performance measures combined ESOS and LTIP award levels in any year was 250% of base salary. Measured over three year period based on TSR performance (ESOS) and EPS growth (LTIP). Vesting at threshold was 35% (ESOS) and 30% (LTIP) rising to maximum of 100% (ESOS and LTIP). Vesting of shares is subject to the Committee being satisfied that it is justified by the underlying financial performance of the Group in the respective performance periods. Policy table for Chairman and non-executive Directors Purpose and link to strategy To provide fees within a market competitive range to recruit and retain individuals with the necessary experience and ability to make a substantial contribution to the Group s affairs. Operation potential value Fees are reviewed periodically. The fee structure is: Chairman is paid a single consolidated fee. Non-executive Directors are paid a basic fee plus an additional fee for any chairmanship of Board Committees and for the role of Senior Independent Director. Fees are paid in cash. Set at a level which reflects the contribution and commitment required of them, taking into account fee levels in other companies of similar size and complexity. Overall the fees paid to non-executive Directors will remain within the limit stated in the articles of association, currently 1 million per annum. The Chairman and non-executive Directors do not receive benefits in kind nor do they participate in the Group s short and long term incentive arrangements or in its pension scheme. Difference in remuneration policy for other employees GKN is a global organisation with employees at a number of different levels of seniority and in a number of different countries and industry sectors. Reward policies for employees other than Directors vary by geography and are determined by reference to grade, role, statutory requirements, local market practice and performance. The remuneration framework for executives in senior management grades is broadly consistent with that for executive Directors. For GKN employees, base pay is generally reviewed on an annual basis; reviews consider market practice, economic conditions and the company s budget. Benefits vary according to statutory requirements and local market practice; employees in senior management grades receive benefits similar to those provided to executive Directors. They also participate in the same incentive schemes as executive Directors. Where appropriate, local arrangements apply to other employees providing them with participation in an annual bonus plan. Consideration of employment conditions elsewhere in the Company GKN seeks the view of employees on a range of matters; however there is no explicit employee consultation process in relation to the Directors remuneration policy. The Committee also considers the most recent pay awards in the Group generally, with the aim of maintaining salary increases for executive Directors in line with the average increase awarded to other employees in the Group (other than as described in the policy table). 82 GKN plc / Annual Report and Accounts 2013

4 Illustrations of application of remuneration policy The total remuneration opportunity that could arise for each executive Director under the proposed remuneration policy in the first year to which the policy will apply under three different levels of performance is illustrated below: Chief Executive (Nigel Stein) Chief Executive Aerospace & Land Systems (Marcus Bryson) STRATEGIC REPORT Fixed pay 100% 1,094 Fixed pay 100% % 23% 18% 1,847 59% 23% 18% 1,155 33% 26% 41% Chief Executive Driveline & 11 Powder 12 Metallurgy 13 (Andrew Reynolds Smith) 3,264 33% 26% 41% Group Finance Director (Adam Walker) , GOVERNANCE Fixed pay 100% 693 Fixed pay 100% % 59% 23% 18% 1,163 26% 41% 2,048 62% 26% 12% 1,011 31% 27% 42% (a) Fixed pay for Nigel Stein, Marcus Bryson and Andrew Reynolds Smith comprises base salary at 1 July 2013, plus the value of pension and benefits in kind as shown in the single 09 figure 10 table. 11 For 12 Adam 13 Walker, it comprises base salary at 1 January 2014 (date appointed 09 10a Director), 11 pension 12 13value (25% of base salary in line with policy for new Directors) and anticipated benefits in kind ( 18,000). (b) performance is the level of performance required to achieve 50% of the STVRS opportunity (55% of base salary) and 25% of the maximum SEP award (including both Core and Sustainability Awards). (c) is 110% of base salary for STVRS and 100% vesting of the maximum SEP award (174% of base salary). (d) The illustrations for on target and maximum performance levels do not include the accrual of dividends over the relevant performance periods under the SEP. Recruitment policy The policy aims to facilitate the appointment of individuals of sufficient calibre to lead the business and execute the strategy effectively for the benefit of shareholders. When appointing a new executive Director, the Committee seeks to ensure that arrangements are in the best interests of the Company and not to pay more than is appropriate. The Committee will take into consideration a number of relevant factors, including calibre, existing remuneration package, and specific circumstances of the individual including the jurisdiction from which the candidate was recruited. 2,001 FINANCIAL STATEMENTS OTHER INFORMATION The Committee will typically seek to align the remuneration package with the Company s remuneration policy (as set out in the policy table). The maximum level of variable remuneration which may be granted (excluding buy-out awards referred to below) is 310% of base salary in line with the policy. Any awards of variable remuneration will be linked to the achievement of appropriate and challenging performance measures. The Committee retains discretion to include other remuneration components or awards which are outside the specific terms of the policy to facilitate the hiring of candidates of an appropriate calibre, where the Committee believes there is a need to do so in the best interests of the Company. The Committee will not use this discretion to make a non-performance related incentive payment such as a golden hello. In some circumstances, the Committee may make payments or awards to recognise or buy-out remuneration arrangements forfeited on leaving a previous employer. The Committee will normally aim to do so broadly on a like-for-like basis taking into account a number of relevant factors regarding the forfeited arrangements which may include the form of award, any performance conditions attached to the awards and the time at which they would have vested. The Committee s intention is that the value awarded would be no higher than the expected value of the forfeited arrangements and would be paid in shares not cash. These payments or awards are excluded from the maximum level of variable remuneration referred to above. Any share awards will normally be granted under the Company s existing share plans. If necessary, and subject to the limit referred to above, recruitment awards may be granted outside these plans as currently permitted under the Listing Rules which allow for the grant of awards to facilitate, in unusual circumstances, the recruitment of a Director. In accordance with the policy on page 82, new non-executive Directors are paid a base fee in relation to their appointment as Director. No sign on payments are offered to non-executive Directors. 83

5 DIRECTORS REMUNERATION REPORT CONTINUED Service contracts and policy on payment for loss of office executive Directors Date of contract Date of appointment Notice from Company Notice from Director Nigel Stein months 6 months Marcus Bryson months 6 months Andrew Reynolds Smith months 6 months William Seeger (a) months 6 months Adam Walker months 6 months (a) William Seeger retires from the Board on 25 February 2014 and from the Company on 31 August Policy on payment for loss of office Notice period The Company s policy is for all executive Directors to have a notice period of 12 months from the Company and 6 months from the executive Director. Termination Termination payments Benefits Annual bonus Unvested long term incentive awards and awards under the DBP on termination Unvested long term incentive awards and awards under the DBP on change of control Discretion The Committee has discretion to choose whether to terminate a service contract with or without due notice or by paying in lieu of notice, dependent upon what it considers to be in the best interests of the Company in the circumstances. An executive Director will be entitled to be paid during his notice period or to a termination payment amounting to no more than 12 months salary, pension and other benefits. The Committee may make additional termination payments where such payments are made in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a Director s office or employment. An executive Director would normally be expected to mitigate his loss. The Committee retains discretion not to reduce or cancel termination payments if an executive Director obtains alternative employment if it is considered to be in the Company s best interests not to do so or if no duty to mitigate is applicable. Benefits normally cease to be provided on the date employment ends. However, the Committee has discretion to allow some minor benefits (such as health insurance and repatriation allowances) to continue to be provided for a period following cessation where this is considered fair and reasonable or appropriate on the basis of local market practice. Appropriate out-placement assistance will generally be offered to an executive Director in line with practice applicable to executives in senior management grades. An executive Director has no entitlement to an annual bonus in respect of the year of termination. However, the Committee retains discretion to make a bonus payment dependent upon the particular circumstances of the executive Director s departure and performance. Any such payment would normally be made on a pro rata basis to take account of time served during the financial year and can, at the discretion of the Committee, be paid wholly in cash. All awards lapse on termination other than for good leavers (see definition below) in respect of whom the following applies: under the SEP, provided termination occurs on or after the first anniversary of the start of the core performance period, vesting of an award is dependent upon the achievement of relevant performance targets and is normally pro-rated to reflect time employed during the measurement period; deferred shares under the DBP are released as soon as practicable following termination. All awards under the LTIP and ESOS have vested and would be released as soon as practicable following termination. Outstanding SEP awards vest on a change of control subject to the Committee s assessment of the performance of the Company and taking into account the period of time from the grant date to the effective date of the change of control. Deferred shares under the DBP are released as soon as practicable following a change of control. All awards under the LTIP and ESOS have vested and would be released as soon as practicable following a change of control. Where the Committee retains discretion, it will be used to provide flexibility in certain situations taking into account the particular circumstances of the Director s departure and performance, with the objective of ensuring that a Director is not paid for poor performance. Good leavers: death, disability, illness, injury, redundancy, sale of business outside the Group, retirement (at the Committee s discretion under the SEP), termination by the Company (other than for dishonesty or misconduct) and other circumstances at the Committee s discretion. 84 GKN plc / Annual Report and Accounts 2013

6 Provisions in service contracts Contracts entered into since 2012: Payment in lieu of notice Payments in lieu of notice are made on a monthly basis. Executive Directors have a duty to mitigate their loss; if an executive Director obtains alternative employment, payments are subject to reduction or cancellation up to the value of the remuneration, benefits and incentives received in respect of the new role. The Committee retains discretion not to reduce or cancel payments in these circumstances if it is considered to be in the Company s interests not to do so. STRATEGIC REPORT Clawback Any payment in lieu of notice will stop and any payments made will be subject to repayment if it is discovered that an executive Director failed to comply with his duties under the contract. Change of control Letters of appointment Chairman and non-executive Directors Date of original letter of appointment Date of appointment Expiry of current term Michael Turner (a) Angus Cockburn Tufan Erginbilgic Shonaid Jemmett-Page Richard Parry-Jones (a) Appointed Chairman on 3 May 2012 for an initial period of three years by a letter of appointment dated 24 November Terms of letters of appointment Provision Chairman Non-executive Directors Notice period 12 months by both parties. 3 months by both parties. Term Termination In line with best practice and the Company s policy for all future contracts, the service contract entered into with Adam Walker in 2013 does not include any provision for payment of a pre-determined amount on a change of control. The service contracts of the other executive Directors (other than William Seeger who retires from the Board on 25 February 2014) were amended on 19 February 2014 to remove the change of control provision from their contracts. Appointed for an initial term of 3 years subject to review at the end of this period. Appointed for an initial term of 3 years renewable for an additional two terms of 3 years subject to performance and the agreement of both parties. There are no provisions for termination payments for the Chairman or non-executive Directors. Legacy arrangements The Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line with the policy set out above where the payment is made pursuant to terms that were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company. For these purposes payments include the satisfaction of awards of variable remuneration and, in relation to an award over shares, the terms of the payment were agreed at the time the award was granted. GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION Consideration of shareholder views The Committee Chairman consults with the Company s major shareholders on a regular basis to understand their expectations with regard to executive remuneration generally and to seek their views on the application of GKN s remuneration policy. Shareholders were consulted extensively in early 2012, following a thorough review of the policy and structure of remuneration for executive Directors, and the Committee took into account their views in setting the current policy, as described above, including in particular the design of the SEP. A further consultation was conducted in late 2013 during which shareholders expressed their continuing support for the policy and how it is being applied by the Committee. 85